The Federal Reserve maintained its key interest rate unchanged and kept its forecast for interest rate cuts this year unchanged, but it supported the risk appetite of global markets. Following the announcement, the US dollar accelerated its decline, falling about 1% from peak to trough. The three major US stock indices all reached historic highs, and gold prices hit new highs.
Alex Kuptsikevich, a senior analyst at FxPro, noted: Powell stated that his views on the inflation outlook have not changed in recent weeks, which was encouraging for the market. It's important to remember that during this time, inflation reports were higher than expected, raising questions about the downward trajectory.
Another positive factor was the removal of the risk of the Federal Open Market Committee reducing the expected number of rate cuts.
Another positive is that the Federal Reserve confirmed the previously announced plan to reduce the sale of securities from its balance sheet. This will add some liquidity to the financial system, thereby supporting risk demand, although the overall impact is relatively small.
The reaction of the dollar was in line with our expectations. The Fed's mild tone triggered an impulsive sell-off in the dollar, with the DXY index significantly breaking through its 200-day and 50-day moving averages.
As expected, and as we wrote before the release, considering the strong technical picture that had formed in the past few weeks, the downward momentum of the dollar did not seem sustainable.
From a fundamental perspective, selling the dollar is not easy when other central banks are preparing to follow suit. At the end of last year, there were speculations that the Federal Reserve would be the first to ease policy, which would weaken the dollar. However, the strong economy and labor market have leveled the playing field. Moreover, on Thursday, the SNB unexpectedly cut interest rates by 25 basis points, highlighting Europe's willingness to relax and cut rates.
The anticipated synchronised easing policy of major central banks around the world has sparked buyer interest in the stock market.
